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Philadelphia man pushes Norwalk to consider tax shift

Josh

Josh Vincent of the Center for the Study of Economics in Philadelphia shows before and after photos of Harrisburg, Pa., which he said was changed dramatically by a Land Value Tax.

NORWALK, Conn. – Scott Kimmich is trying to raise awareness of an idea he says might be useful in instances like the long-dormant 95/7 site – a switch to a Land Value Tax, which would penalize owners of undeveloped land and discourage blight in Norwalk.

“For an urban situation it’s fantastic,” Kimmich said.

To that end, District E Democrats recently had Josh Vincent of the Center for the Study of Economics in Philadelphia up for a visit, so he could be peppered by questions by a less-than-receptive group of skeptics.

“Well that was lively,” Vincent said, gaining laughter from the about 10 people present in Democratic headquarters, after an hour and a half of staving off rebuttals.

“You’d think we’d be the receptive crowd,” one man replied.

“Land value taxation, often introduced in the U.S. as a split rate property tax, is a separate tax on land as distinct from buildings, with the market value of land affected by factors such as location and size,” writes the Lincoln Institute of Land Technology, which held a conference in July for municipalities that might be interested in trying LVT.

In 2013, Gov. Dannel Malloy signed House Bill 6706, the Omnibus budget bill, which includes as Section 329 a tryout of LVT for up to three municipalities. Nothing seems to have happened since – a Google search turned up only the above-mentioned conference and a bill to extend the proposed pilot program for a year, introduced this spring and then dropped.

Kimmich arranged for Vincent to be the first guest speaker at a District E meeting, a move intended to inspire conversation and passion. It worked.

“This seems like it’s going to make my tax double and the tax on Home Depot and Walmart and all those places permanently will go way down, all to get some of the empty lots filled, which will also have fancy commercial buildings, which will also have low taxes in perpetuity,” Stuart Wells said.

Vincent of the Center for the Study of Economics in Philadelphia

Vincent of the Center for the Study of Economics in Philadelphia,

“You own a house, right?” Vincent asked. “The chances are your taxes are going to go down. That’s been the result of almost every study we’ve ever done, except in suburban – ”

Multiple people questioned that.  “This is so commercial will be built, so their taxes have to go down, so who’s left?” one person said.

“I’ll show you,” Vincent replied.

A Land Value Tax would increase investment and give property owners incentive to keep up their property, he said. It’s supported by “smart growth advocates including the Sierra Club,” he said.

“We’re relieving development pressure on the exurbs and a huge concern in Connecticut is the loss of countryside permanently to development as the cities become less dense and as people leave the older towns,” Vincent said.

It would help protect historic districts, he said.

“Fixing up and maintaining historic districts is a very, very expensive proposition. We were talking about tax credits, abatements, a little earlier, and how the temporary nature of those abatements can have a deleterious effect,” Vincent said. “Because this is a permanent abatement on structures, including expensive historic structures in districts, it makes it more affordable and makes the markets work in these areas. Ootherwise you would need tax credits year after year after year that other people pay for.”

The current property tax structure is barely scraping the higher land values along Route 7, Interstate 95, and the waterfront, he said.

“If people want to be (on the water) they ought to help pay for the privilege,” Vincent said. “And … 80 percent of your property tax revenue comes from what you want – buildings.  Most of that would be in the old, almost pre-industrial form of Norwalk. What we want to do is sort of flip that script, so that land value that you, the community, create – you have a good school system, a good police department, you have good infrastructure, you invest a lot of money, the state invests a lot of money in roads, highways, railroads, all of that creates land value. You create land value. A property owner, a building owner, they create the value, and that’s what we’re punishing with the current tax system. So if the community creates land value, that ought to at least be the primary source, and in some places, like Sydney Australia, or Singapore, it’s the only source for municipal revenue.”

The middle class is being punished, as 92 percent of the revenue in relatively low land value areas comes from buildings, Vincent said.

“If you have a homeowner and they’re a bus driver or a nurse, they are paying more than their fair share the way the tax is set up,” Vincent said. “… The idea of land tax is to get some revenue from someplace where there will always be value and ease the burden on those who cannot afford it.”

This shift would be done gradually, spreading the impact out over a period of years, he said. “You’d see a shift to the corporate entities that are out on Connecticut Avenue, the big box stores.”

“They’re going to have to take it out of labor, or the prices of the products,” Zoning Commissioner Nora King, District E Co-chairwoman, said. “We’ll be paying it one way or the other and you know what? It’s going to make companies not want to come here and do business.”

“Well, what do we do about Main Street? You have to make a decision,” District E Co-chairwoman Galen Wells said.

“Talk about winners and losers here,” Kimmich said. “We can see that some of the losers are going to be the people with vacant lots, who are undeveloped, who are waiting around and not doing anything, and we have them right here in Norwalk. This is disgraceful, what we have here, 15 years. A land tax would get these guys going.”

“That’s relatively few owners,” DTC Chairman Ed Camacho said.

“95/7 is what I am talking about,” Kimmich said.

Norwalk’s infrastructure is being underutilized, Vincent said.

“Norwalk has all this stuff, it’s got the railroad, it’s got I95, it’s got ancillary commercial corridors, and to make the city affordable for everybody we want to use as much of it as is supposed to be used, particularly non-residential, but also what used to be called dense walkable neighborhoods,” Vincent said. “In the neighborhoods, you used to have shops, you used to have barber shops, you used to have all of that. Every city in Connecticut used to have that and every city in Pennsylvania did, and they lost all of that since World War II.”

As an example of what could happen, he showed images of Harrisburg, Pa., which he said was losing its downtown in 1982.  A Land Value Tax stimulated construction of large buildings and 92 percent of the residents saw a benefit, he said.

A parking lot had been turned into a 10-story building with Class A office space, which would not have happened if not for LVT, he said.

Parking lots are often owned by out-of-towners, he said.

“They charge parking to pay their tax bill. They pay their tax bill in three or four weeks. That’s insane, with all the infrastructure you’ve got … this parking lot does not have the right to hold that land out unless they pay for the privilege of holding that land out of use,” Vincent said. “For having the nerve to put up a 10-story building that employs 300 people and added gosh knows what to the construction industry, we want them to pay through the nose. It doesn’t make sense.”

LVT 1

A slide from a PowerPoint presentation promoting a Land Value Tax.

7 comments

Stuart Wells October 26, 2014 at 9:16 am

As became clear after I attended this presentation about a month ago, a “Land (only) Tax” system would probably:
1) Increase the tax on box stores like Walmart, Home Depot, etc as they have a lot of land and cheap structures.
2) Decrease the tax on office buildings like Merrit7, 50 Washington, etc because they have small parcels in relation to large structures.
3) Increase taxes on some homes and decrease taxes on others based on the land vs building ratio, i.e. lots of land, modest house would see greater taxes, whereas McMansions would pay less.
This would, of course, encourage future box stores to locate on smaller parcels, probably by having the building on top of a few levels of parking ramp. Imagine two more box stores in the space now occupied by Walmart-Home Depot on Connecticut Avenue.
It would also encourage multi-family developments as they have large structures on small lots. But more multi-family developments would increase school costs, by adding students, while not adding much to the tax base. Everyone’s taxes would go up to pay for construction of additional schools, and annual education costs.
Rowayton would continue to be screwed because most of the value of their homes is in their pricey, near the water, real estate. Of course, there would be nothing to discourage McMansions on the waterfront property, so everyone else’s view would be cut off, which might eventually hold done their taxes as their land value would decrease.
One other potential problem would be the fights and court battles such a tax would cause over property valuation. A few hundred dollars more or less in the value of your land would carry a large tax change. But raw land rarely changes hands, because there is little of it left in Norwalk. So assessors and appraisers would have to calculate the land value from sales of buildings plus land. The various formulas for calculating the building portion (things like replacement cost, and rental value per square foot, etc.) do not yield identical results, and there would be a lot more riding on the calculation. For example, assume a property is really worth $1 million, with $200,000 being land and $800,000 being the building. A 10% over or under-assessment in building valuation under the current system would increase or decrease the tax burden by 8%. Total value would be $1,080,000 or $920,000. Under a Land Tax system, if the building was under-assessed by 10% ($80,000) the land would be over-assessed by $80,000 or 40%, and taxes would be that much greater.
To keep up with the school cost increase’s due to multi-family developements we would eventually become a city with no private lawns because every square foot of land would have a building on it. Parking would be underneath the buildings. All of the people now employed in lawn and garden services would instead by employed by elevator repair companies, except for those working on roof gardens. The only open spaces would be on city owned property such as school playing fields, or on land owned by a religious institution, or Norwalk Community College.
On the other hand, maybe people can keep down the value of their undeveloped land, and thus their taxes, by using deed restrictions. I give you an easement over my back yard in exchange for an easement over yours. The easements prevent development, so the land will have little value and be taxed a lot less. That is not just a theoretical idea — much of the Dolce Center land along Weed Ave is in exactly that situation.

One and Done October 26, 2014 at 10:10 am

Open plea to liberals.

Can you please stick to art, literature, music?

Please leave the business side of things to people with a clue.

Society works when we set it up that way.

Your polices have created wonderful places like Bridgeport and Detroit.

Let’s end the madness.

Mike Mushak October 26, 2014 at 10:18 am

Stuart, your lengthy post rivals many of mine! I read your post carefully, and the article, and am fascinated by the arguments pro and con and am intrigued by this concept, but I need more information and examples to form an opinion about this. Harrisburg sounds like its worth investigating deeper here.

But I will counter one of your points about “multi-family” development. The word “family” in that phrase “multi-family” is a bit deceptive, as it is used to describe any apartment building with 2 or more units, many of which are designed not for large families at all but for young singles and childless couples, and older empty nesters who are moving into denser cities from the suburbs after their kids leave home for college, for better access to urban environments with abundant dining, entertainment, exercise, and shopping.

A study commissioned by the Redevelopment Agency a few years ago found that the new large multi-family buildings being built or proposed in Norwalk actually contribute much fewer children to the school system than you would expect, which I believe was around .015 or something that low per unit. I need to find that research in my files or online to confirm the exact number, but if my recollection is correct, you can see that as an example, a building with 100 new typical units (studio, 1 and 2 bedroom, not 3 or 4 bedroom like a single family house) is actually adding only 1.5 children in total to the school system.

Your description therefore of a scenario where new multi-family development is adding a burden on our school system and our taxes is not supported by the statistics.

I do like the idea of penalizing owners of empty or underutilized lots, which there are many more of in Norwalk than 95/7. You can drive down MLK and see acres of it, which is also a result of obsolete zoning and a collapsed manufacturing economy. Also, the commercial strips of CT Ave, Westport Ave, and Main Ave need more infill multi-use development including residential to balance the crushing traffic that sprawling car-oriented retail-only development brings, which has been the focus of Norwalk’s failed planning policies and incompetent staff for decades even up to this year. when staff worked behind the scenes with GOP zoning leadership (using intentional bogus data staff provided) to kill the smart zone change for Main Ave that was recommended by an expert planning study and our own Master Plan, which would have discouraged big box retail in that dangerous stretch of road. The fact is, without smart planning happening in Norwalk with the current staff in place (we have no planners in our P and Z Department amazing as that is, and they routinely ignore studies and our Master Plan as if they don’t matter at all) any discussion of bigger issues like restructuring our tax base to encourage lesser burdens on homeowners and smarter development will be so much harder than it should be.

Oldtimer October 26, 2014 at 3:02 pm

Interesting idea. The devil, of course, would be in the details. The City should want to discourage holding large pieces of undeveloped land without encouraging overbuilding on small plots. A look at places where this has been in effect for a while might be a good idea, but selling the idea will not be easy, no matter how good it looks.

John Hamlin October 27, 2014 at 7:26 am

An interesting idea — surely parts of it, at least, are worth considering and perhaps pursuing. Definitely worth further discussion so that the idea and it’s potential impact can be understood and debated. But effective zoning and a strong blight ordinance could accomplish some of this, and they have already been tested and have proved successful in many other towns in CT. No excuse not to try what’s worked in other towns — but Norwalk defers to the entrenched interests.

Ken October 27, 2014 at 10:21 pm

We should NEVER punish people for doing as they like with their property. Tax them on what it is and thats that. Our problem is NOT lack of revenue, its lack of responsible spending. When talking about the highest taxed area in the highest taxed state, focusing on raising more money is about as irresponsible as you can get.

Root Bug November 13, 2014 at 2:29 am

The point of LVT is not “how can we raise the most money”. It is:
– how can we get the real estate market to work efficiently and prevent harmful hoarding and underuse, and
– how can we capture back the windfall gains to real estate owners from public infrastructure investments (currently paid out of taxes!) and the general rise in living standards.

You should tax land even you had to pay all of the revenues to Canada!

And Stuart, LVT is not a fixed tax per sqm but depends on the value of the location. Hence, centrally located office buildings are likely taxed more than malls in the middle of nowhere. Of course, many malls do use also valuable location wastefully (with large parking lots etc.).
http://rootbug.org/Ns1
http://www.youtube.com/embed/XL3n59wC8kk

“…every square foot of land would have a building on it.”

The function of zoning is to prevent this kind of excess density. And yes, parks would be publicly maintained places, which increase land values of surrounding buildings and hence often pay for themselves through higher LVT returns.

And the concern about fair land and building valuation is valid! For that to work effectively, we need a much more efficient real estate market – which we could achieve by removing all tax subsidies for homeownership. This would separate the real estate (investment) market from the accommodation (services) market and make the investment market almost as efficient as the stock market. Land values could be determined based on recent purchase offers and how the evolve in an area.

Also, a 100% tax on land rent is hardly optimal. Taxing land value around 5-10% would still leave over half of the rent from land to the land owner and make the effects of error margins smaller.

I’ve discussed these issues in the book “Fixing the Root Bug” ( http://rootbug.org/FtRB-Kindle ; http://rootbug.org/FtRB-print ) in the chapters:
4.3.1.2 Land Value Taxation – Preventing Underusage, Extortion and Bubbles
4.3.1.3 Practical Challenges: Fair Valuation and Assessment of the Replacement Costs of Improvements and Other Owner-Created Value
4.3.1.4 The Pure Lease Alternative’s Problems – Land Value Is Location Value of Real Estate
6.2.3 Appendix 2.3: Effects of LVT on Land Value – The Optimal Land Tax Rate?

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